In this week’s Where Stuff Comes From Weekly: Space and GPS are critical parts of the stuff-chain, we need more semiconductors, and how the Texas ‘icepocalypse’ triggered a global plastics shortage.
Cheers,
Max
Space: A Key Innovation Resource In The Cold War With China
Right now, the most important geopolitical competition since World War II, is unfolding between China and the United States. Space and space adjacent infrastructure and tech are critical chess pieces on this evolving battlefield. When was the last time that you asked: Where do the magical signals that guide your GrubHub orders, UPS deliveries, and Lyft drivers directly to your door come from? The answer is space. In this episode of the Next Frontier Podcast, we explore some of the high-level strategic moves that are unfolding right under our noses in the ongoing cold-war between the United States and China, and the implications that these moves have for entrepreneurs, industrialists, and innovators.
Will We Be Ready If GPS Goes Down?
The global positioning system (GPS) has been one of the most economically impactful technologies to be commercialized in human history. Every time that we use real time maps and location settings — ordering from iPhone delivery apps; navigating cars, boats, planes, or drones — we are using GPS. The global position system is just that – a system of satellites outfitted with some cool physics tools that orbit the Earth and beam signals down to our vehicles and devices. Just like other parts of our high-tech critical infrastructure, GPS is extremely vulnerable to digital attacks. It is safe to say that GPS is a critical point of failure in the global economy. What would happen if ‘where our navigation system comes from’ no longer works reliably, either due to a cyber attack, a cosmic event (like a solar flare), or a conventional attack from a hostile country? Here is a frightening micro-scale example: “the British oil tanker Stena Impero was lured into Iranian waters in the Strait of Hormuz while its GPS, “spoofed” by the Iranians, told navigators it was in international waters. The ship was captured and its crew imprisoned in Iran for 10 weeks.”
Action items: How is your business and day to day life dependent on the unwavering reliability of GPS?
- How long can you business survive if GPS goes down?
- How will you access the products that you manufactured halfway across the global, if the global freight network faces substantial delays while hundreds of freightliners are stuck at sea, not knowing how to navigate without GPS? Do you have enough relatively local production capacity to keep your business afloat without relying on faraway GPS dependent imports?
- In your personal life, how will you navigate your vehicle(s) without GPS? Do you have paper-map backups?
Global Computer Chip Shortage ‘Reaches Crisis Point’
Every industry is now feeling the pain of the global chip shortage that has unfolded since the middle of 2020. In a world of abundance, we should be particularly focused on making sure that we have a reliable flow of where our abundance comes from: semiconductors. At first, this semiconductor shortage came as a result of factories shutting down at the start of the COVID pandemic. The supply chain squeeze intensified over the past few months as this scale back in production was met with a dramatic rebound in demand for new computers, televisions, video game consoles, and mobile phones. As we’ll see in the next section, we are not even close to the worst-case scenario for this global chip shortage. Taiwan produces 51% of the world’s semiconductors and they are facing a handful of other supply chain disruptions, including a substantial water shortage, upcoming typhoon season, and near term conflict with China. Last month, severe weather further impacted the semiconductor shortage when a series of intense winter storms slammed Texas and forced Samsung and other manufacturers to take their Austin semiconductor productioncapacity offline.
Key Quotes:
- Initially the problem was only a temporary delay in supplies as factories shut down when the coronavirus pandemic first hit. However, although production is back to normal, a new surge in demand driven by changing habits fuelled by the pandemic means that it is now reaching crisis point.
- Car manufacturers investing in tech-heavy electric vehicles, the boom in sales of TVs and home computers and launch of new games consoles and 5G-enabled mobile phones have all driven demand.
- Ford recently cancelled shifts at two car plants and said profits could be hit by up to $2.5bn this year due to chip shortages, while Nissan is idling output at plants in Mexico and the US. General Motors said it could face a $2bn profit hit.
- [Samsung] said it might have to postpone the launch of its high-end smartphone due to the shortage, despite also being the world’s second-largest producer of chips.
Taiwan Says It Has Enough Water To Keep Chip Makers Humming Amid Worst Drought In Decades
As we saw in the last story, the global semiconductor supply chain is already facing a substantial supply squeeze. Manufacturing semiconductors requires a lot of water, and most of the world’s semiconductors (about 51%) come from Taiwan. In 2020, Taiwan received about half of the amount of rain that the island nation did in 2019, resulting in the worst drought Taiwan has seen in over 60 years. The bulk of the 16-17 billion tons of water that Taiwan consumes annually typically comes from their heavy typhoon season, but in 2020, not one typhoon made landfall. Right now, this water shortage has not effective semiconductor manufacturing, but another dry Typhoon season could be crippling for a global economy already stressed for tech-hardware. As a contingency for the prospect of a worsening water shortage, chipmakers are buying truckloads of water to prepare to meet future water demand, at least for a few weeks until Taiwan gets a new water delivery from mother nature this Typhoon season.
What would it take to diversify where the global semiconductor supply chain sources their water? Barren and dry countries like Israel are achieving water abundance by using desalination technology to augment and offset any gaps in water supply from lack of rainfall.
Action Item: Are you and your business vulnerable to water service disruptions?
- In Texas, many manufacturing and processing facilities and residential buildings are still recovering from last month’s ‘icepocalypse’. Most buildings in Texas do not have insulated plumbing; so when temperatures quickly dropped below freezing for seven straight days, pipes burst, disrupting water access for at least days and, for some, weeks.
- At home, do you have enough bottled water and water purification tools to last you for a prolonged water service disruption? On a personal level, a key lesson that I learned from last month’s ‘icepocalypse’ is that immediately upon learning about a potential water service disruption (let’s say because of inclement weather), fill up pots, empty bottles, and even your bathtub with water. I recommend this FEMA guide to learn more about ensuring you can design reliable and safe sources of ‘where your water comes from’, even in an emergency.
Intel To Step Up Chip Manufacturing With $20bn Plants
For the last few years, Intel struggled to keep pace with Taiwan Semiconductor and Samsung’s latest and greatest 7nm chips. At the start of 2021 Intel changed leadership and the new management team is committed to rebuilding the United State’s semiconductor manufacturing capabilities. To achieve this goal, the new management team is pivoting their strategy from manufacturing solely their own chips to heavily investing in becoming a semiconductor contract manufacturer for other companies, known in the industry as ‘fabless semiconductor companies’. By announcing this new strategy, Intel also affirmed their commitment to manufacturing their own chips, rather than pivoting their business model to that of a fabless semiconductor company and outsourcing their chip manufacturing to Taiwan Semiconductor or Samsung. This announcement from Intel is welcome news for the United States industrial base and will be a key part of solving the existential threat of allied dependence on adversarial, unstable, and or unreliable semiconductor supply chains, largely based in East Asia.
Key Quotes:
- The new fabs are expected to begin production in 2024. Construction will start this year, creating 3,000 construction jobs. Once built, they will create at least 3,000 “permanent high-tech, high-wage jobs” and about 15,000 local long-term jobs, Intel said.
- Gelsinger cited figures giving Asia an 80 per cent market share for the foundry industry — which he expects to be a $100bn market by 2025. The US has a 15 per cent share and Europe has 5 per cent.
- Gelsinger mentioned wanting to go to Qualcomm, a chip designer, to say: “Hey, let’s find ways to leverage our technologies in ways that weren’t possible before, and can we become your foundry partner?”
- “We also will pursue customers like Apple,” which in June announced a major shift away from relying on Intel to instead design its own chips for Mac products, which are then manufactured by TSMC.
Texas Freeze Triggers Global Plastics Shortage
Take a moment to look around your room. How many different plastic products do you have? I am certain it’s quite a few. So, since plastics are all over the place, what are plastics and where does this plastic-stuff come from? Most plastics start their life in the ground as natural gas or crude oil, aka short chains of repeating carbon atoms conveniently synthesized from millions of years of geological processes. We drill, dig, or pump these chains of carbon out of the ground and chemically manipulate them into longer chains of carbon, nitrogen, oxygen, and sometimes other elements. These long chains are called polymers or more colloquially, plastics. We then heat and press these polymers into the products we know and love: kitchen plastic wrap, tupperware, mobile phone cases, car dashboards, laptop keyboards.
Last month, the Texas ‘icepocalypse’ took 80% of Texas’s production capacity for three of the most commonly used plastics (polyethylene, polypropylene, and polyvinyl chloride) offline in an effort to conserve power and to address frozen plumbing and pipelines that carry natural gas, crude oil, water, and precursor chemicals during production. At least 15% of Texas’s capacity still remains down. Exactly how much plastic produced traces back to Texas is unclear, but with Texas being the top producer of crude oil and natural gas in the United States, this production shut down is having a substantial impact. Prices for the three most commonly used plastics are up between 100% and 300% since last year.
Key Quotes:
- Honda Motor Co. said Wednesday it would halt production at most of its U.S. and Canadian car factories next week, citing supply-chain issues including the fallout from U.S. winter storms.
- Toyota Motor Corp. said it was recently informed that a shortage of petrochemicals will affect production at its car plants.
- Paint maker PPG Industries Inc. said a number of its suppliers have been affected by the problems in Texas.
- Container Store Group Inc. warned that the shortages could influence profit margins at the storage and shelving retailer.
- A rapid, unplanned shutdown of some the country’s largest manufacturing plants occurred over a span of hours. At the peak of forced shutdowns, 75% of polyethylene capacity was shut, 62% of polypropylene capacity and 57% of PVC, according to S&P Global Platts.
BONUS: A World Without Metals
Without metals, the world would quite literally fall apart. This video does a great job of illustrating just how ubiquitous metals are to our everyday lives, and why we need to ask whether where our metals come from is reliable, secure, and sustainable. It’s a short, fun, and thought-provoking watch.
Want More Insights Like These?
Follow Max Goldberg on LinkedIn for daily updates.
This Meditation on ‘Where Stuff Comes From’ breaks down why you need to immediately dive into where your stuff comes from. This meditation will help you to navigate the rapidly changing geopolitical, business, and human rights environment that we face today. Read this meditation and follow these weekly newsletters to gain the confidence that you need avoid being caught flat footed, unprepared, and reflecting retrospectively: “Well, I guess THAT’S where that stuff comes from.”
Know someone who would benefit from ‘Where Stuff Comes From’ Weekly? Send them to this link to sign up.
